Team Work: Saving As a Couple

We’re full-swing into wedding season. As you know, I’ve done many segments about budgeting for a wedding or how to negotiate a prenup or even managing finances after divorce, but today I want to focus on newlywed couples as they face the daunting task of merging finances.

So where do we start?
It’s a personal decision figuring out how much of your finances you and your partner want to merge, but hopefully, you’ve come to some sort of agreement about this before the I do’s.

There are many different methods of going about the pooling process. Some couples like keeping everything separate—individual bank accounts for their individual paychecks—and each person is responsible for paying specific household bills. If that works for you, Godspeed, but today we’re talking about merging, which is more common.

You could choose to merge absolutely everything under one joint account or you could go with the three-pot system. In the three-pot system, you keep your individual accounts and open a new joint account. Each person puts a designated percentage of their respective salary or a fixed flat amount into that joint account, and the money goes toward the payment of joint expenses like rent, utilities, and groceries. A lot of couples like this approach because they have their own accounts with their own earnings for discretionary spending.

There is no right or wrong choice here and I leave it to you and your partner (and maybe a good financial planner) to hash out the details. But the common denominator is that you must, always, ALWAYS start with honesty and full disclosure. Do not let a partnership start out with financial secrets. Sit down and have the “money talk.” Come clean about any outstanding credit card debt you may have and devise a plan to pay it off. Be clear with your partner about all your assets and liabilities—and that includes potential future liabilities, like paying for graduate school or caring for an ailing parent.

What if one person has bad credit? Does getting married merge credit reports?
Just getting married doesn’t merge your credit. For instance, a groom’s bad credit doesn’t automatically lower his new bride’s good credit score. Your credit history is your own, and each of you always will have separate credit histories.

But when a couple applies for credit jointly, the lender will consider both of your credit histories. While one person’s history may be squeaky clean, the other’s more blemished credit could cause the couple to be declined or to pay higher interest rates and fees.

This is particularly true when it comes to getting a mortgage. Because a home purchase is such a large debt, both of your credit histories, as well as income and other financial obligations, will be considered to determine if, as a couple, you qualify for the loan.